5377730933_64fd363fbd_b

IPO-hungry bankers flood Middle East


Investment bankers handling deals in the Middle East are busier than ever in a year that has seen the biggest decline in initial public offerings since the financial crisis.

The United Arab Emirates and Saudi Arabia have emerged as new IPO hotspots, supported by strong oil prices and investor inflows, as listings decline in London, Hong Kong, and New York. Over half of the profits came from Europe, the Middle East, and Africa this year, as listings in the area brought in $22.6 billion. The dual listing of Americana Restaurants International Plc this week attracted $105 billion in orders for a $1.8 billion deal, demonstrating the robust investor interest.

Global banks are recruiting ordinarily idle teams in cities like London to help, moving personnel, or expanding to manage the frenzy of activity. The top IPO bankers for emerging markets in EMEA at Goldman Sachs Group Inc. and JPMorgan Chase & Co. are concentrating more of their time there. Three bankers were employed by Emirates NBD PJSC, the largest lender in Dubai, to cover offerings, according to sources familiar with the situation. Over the previous two years, Citigroup Inc. has increased the size of its regional investment banking team by 50%.

“We always fly in specialists,” Miguel Azevedo, head of investment banking for the Middle East and Africa at Citigroup, said in a recent interview. “I can tell you that the region has been the favourite destination for most of my colleagues over the last 12 months for sure.”

The Middle East boom, which has resulted in 42 regional listings in a little over 11 months, is all the more noteworthy in light of the fact that new offerings are all but nonexistent in other financial hubs as a result of deal-related market instability and rising interest rates. The Gulf is on track to have its second-best year for share sales, only surpassed by 2019 when Aramco successfully completed its record-breaking $29.4 billion listing. Eight out of the top ten largest IPOs in EMEA this year have taken place in the Gulf. And the pace of deals isn’t slowing down at all.

In what is expected to be one of Abu Dhabi’s greatest listings, Abu Dhabi National Oil Co. chose Goldman Sachs Group, Bank of America Corp., and First Abu Dhabi Bank PJSC as joint worldwide coordinators for the IPO of its natural gas company next year, according to Bloomberg this week.

Although advisers are working nonstop on deals in the Middle East, the IPO boom isn’t turning into a fee windfall for them. For its $1.8 billion dual-listing in Riyadh and Abu Dhabi, Americana paid around 194.4 million riyals ($51.7 million) in overall costs, or 2.9% in offering expenditures. For its $1.3 billion offering, Saudi Aramco Base Oil Co. paid 85 million riyals (1.7% in fees).

The typical charge in the US is almost five times more. Banks including Goldman Sachs and JPMorgan divided fees from assisting Peloton Interactive Inc. raise $1.2 billion in 2019 by around $60 million.

Recent market launches have been met with mediocre reviews, which may be a sign that some of the initial excitement for new listings is beginning to wane.

It is disheartening that three out of five IPOs in Dubai are currently trading below their listing price after an effort to revitalise the local capital markets. Most recently, despite receiving $3.7 billion in orders for its $204 million IPO, private school operator Taaleem Holdings saw a 15% decline on its first day of trading. Investors in Saudi Arabia are suffering severe losses as a result of the Public Investment Fund’s $610 million stock market auction, with shares selling for around 20% less than the offer price.

Samer Deghaili, regional co-head of capital financing and investment banking coverage at HSBC, noted that investors have been acting more cautiously overall when examining traded stocks and the IPO pipeline. Some companies that are considering going public are reviewing their plans and deciding whether to slow down or whether values are still favourable.

Additionally, the craze did not strengthen the regional stock markets over time as was hoped. The quantity of shares traded in Dubai, for instance, has fallen below the annual average of 52 trillion shares moved since 2003 and is at its lowest level since 2011. The Tadawul All Share Index average annual volumes in Saudi Arabia are expected to be at their lowest level since 2019.

However, for the time being at least, demand is still high, particularly among local investors, as seen by the fact that the majority of offerings are sold at the high end of their price range and are quickly snapped up.

Pan Finance is a print journal and news website providing worldwide intelligence on finance, economics and global commerce. Known for our in-depth analysis and opinion pieces from esteemed academics and celebrated professionals; our readership consists of senior decision makers from across the globe.

Contact us